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Euro loses ground as reserve currency

Wednesday, July 16 11:05:07

The euro's share in global foreign exchange reserves fell further last year as central banks appeared to diversify their holdings but foreign investment into the euro zone rose, the European Central Bank said today.

In a report on "The International Role of the Euro", the ECB said the euro's share in global foreign exchange reserves was 24.4 percent at the end of 2013, down 0.9 percentage points from the end of 2012, after adjustment for exchange rate effects.

The euro remained the second most important reserve currency after the dollar, which accounted for 61.2 percent of reserves, steady from the previous year. The moderate fall in the euro's share in reserves continued a downtrend observed since mid-2010.

"The share of the euro in global foreign exchange reserves continued to decline in 2013," the ECB said in the report.

"While the share of the U.S. dollar remained broadly unchanged, the shares of the Australian and Canadian dollar further increased, possibly reflecting central banks' intention to further diversify reserve holdings towards non-traditional reserve currencies," the ECB added.

Overall, global foreign exchange reserves grew further in 2013, though at a reduced speed, to hit a new high of $11.7 trillion at the end of 2013.

Foreign investment in the euro area rose last year, with foreign demand for euro area portfolio investments hitting its strongest level since the onset of the financial crisis in 2007.

"These capital inflows reflected both domestic and external factors, including improving euro area macroeconomic fundamentals, a further reduction in perceived tail risks, and a rebalancing of international investors away from emerging market securities," the ECB said.

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